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Amendment, by leave, withdrawn.

Lord Oxburgh moved Amendment No. 29A:

29A: After Clause 91, insert the following new Clause—

“Electricity and Gas Acts: interests of consumers

(1) The Electricity Act 1989 is amended as follows.

(2) In section 3A (principal objective and general duties of Secretary of State and Authority), after each occurrence of the words “consumer” or “consumers” insert “, existing or future,”.

(3) The Gas Act 1986 is amended as follows.

(4) In section 4AA (principal objective and general duties of Secretary of State and Authority), after each occurrence of the words “consumer” or “consumers” insert “, existing or future,”.”

The noble Lord said: My Lords, I declare an interest as a director of Falck Renewables. The purpose of this amendment is to achieve the same objectives as the amendment that I introduced in Committee, but to do so more elegantly. It is motivated by our national failure both to move early enough to replace existing infrastructure that is approaching the end of its useful life and to build in a timely way new infrastructure that is needed to meet the need of climate change. By giving prominence to the interests of future as well as existing consumers, the amendment raises to the level of a primary objective of Ofgem a duty to give high priority to sustainability and security of supply.

Of particular concern today is the capacity and shape of our grid for the transmission of electricity. There is no point in building new power stations or wind farms if the electricity cannot be transmitted to where it is needed. The present grid was designed and built nearly half a century ago to distribute electricity radially, from a limited number of large power stations. Today not only is much of it due for replacement and upgrading but it also needs urgently to be reconfigured and extended to accommodate changing patterns of electricity generation that arise from the increased use of wind generation power to meet our 2020 target.

Progress in exploiting all renewables has been painfully slow, for two reasons. The first is delay in obtaining planning decisions. In one case, an important overhead power line took 14 years to obtain consent. This problem is being addressed by the Planning Bill that is at present before this House. Today’s amendment relates to a second delay—namely, in connecting new generating

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capacity to the grid. The grid has to be reinforced and reconfigured because most of the remaining attractive sites for renewable generation are either in the far north of the UK, or offshore, or both, while the main demands for power are in the midlands and the south. At present, there is effectively no way of getting power from one to the other. This is leading to a chicken and egg situation. Generating companies are unwilling to commit to building new capacity—for example, off north-east Scotland—unless it is clear that what they build can be rapidly connected. The capital that they invest brings no return until the wind farm or wave machine can supply power to the grid. On the other hand, the regulator is seen as having been reluctant to allow a rate of return sufficiently attractive to encourage transmission companies to build new transmission capacity ahead of demonstrated need.

Clearly, building either transmission or generating capacity ahead of need means that there is a risk of one or the other being stranded—that is, being inactive indefinitely or at least until the complementary facility is built. Risk has a price tag and in the present urgent situation the regulator must find means of de-risking this process to acceptable commercial levels. If this does not happen, it may be necessary for Ministers to intervene, simply because otherwise essential infrastructure will not be built in time. In all fairness it has to be said that Ofgem has finally begun to respond to these pressures and more than £4 billion of grid expenditure has been authorised up to 2012. The purpose of this amendment is to ensure that that progress is not just maintained but accelerated. If the Government accept this amendment, as I hope they will, the message will not be lost on either Ofgem or those whom it regulates.

The infrastructure developments that I have been discussing will take years to implement. There are, however, measures that could be taken modestly to improve the situation in the short term. The transmission access review that was recently undertaken by the Department for Business, Enterprise and Regulatory Reform and Ofgem has shown that the existing transmission capacity is not always used to full capacity. This is because the present arrangements for sharing are on a voluntary commercial basis. In some cases, they are not fully effective and leave capacity unused that could be used by others. In our present situation, it would be worth while giving consideration to whether Ministers need powers to ensure that, when commercial processes fail, spare capacity is made available to those who could use it.

The present arrangements for prioritising grid access for new generating plants have also been subject to criticism. Under the present first come, first served arrangements, an incomplete project may retain its precedence over others that are ready to go. It is widely believed that insufficient priority has been given to transmission needs of renewable energy sources.

Although beyond 2020 other renewable technologies are likely to play an increased role, for the present our main source of renewable energy will be wind. It is an unfortunate fact that, even in the most attractive locations, wind turbines are unlikely to generate electricity for more than 30 per cent, or at best 40 per cent, of the

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time. The expectation is that at any one time, somewhere in the country, the wind will be blowing and intermittent generation will be staggered round the grid. Unfortunately, this cannot be guaranteed and the country may occasionally be affected by a nearly general calm—and so backup is needed. Countries that generate a high proportion of their electricity from wind, such as Denmark, at about 20 per cent, avoid short-term electricity shortages by having high-capacity connectors to neighbouring countries through which they import or export power in response to wind conditions.

On present plans, the UK will approach the Danish proportion around 2020 and the case for reinforcing our interconnectors with the mainland European and/or Scandinavian grids should be considered. There is a financial and carbon balance to be struck between providing back-up from domestic fossil fuel plant and importing electricity from abroad. In the interests of energy security and energy costs, we probably need both. There is some question whether such international interconnectors are likely to be promoted by existing commercial interests. Energy security clearly has a value to the country as a whole, but it does not necessarily have a short-term value to the market, and Ministers might like to consider whether they need powers to ensure that appropriate interconnectors that may be needed can be built.

Finally, I shall say a word on costs. Depending on the design details, the costs of refurbishing and extending the grid are likely to run between £10 billion and £20 billion between now and 2020. The good news is that, even if a major expansion and development of the grid were agreed today, we would be looking at a 10-year time span for its completion, with the heavier expenditure in the latter half of the period. This means that the present financial crisis should not be taken as a reason to procrastinate. For the immediate future, all that is needed is public commitment and careful planning and design work. I suspect that Ofgem might well argue that it is already moving in the direction that I suggest. That may be so—but it is not fast enough, and I believe that its corporate feet must be held to the fire.

I am conscious that on three occasions today I have raised the question of ministerial intervention. I have done this with reluctance but, in our present situation, if the market does not respond rapidly enough, intervention is the only alternative. The message is urgency; to have any chance of building the infrastructure in place, in time, it is essential that preparations are made now and progress ought to be limited not by bureaucracy, by regulatory failure, or by market failure, but only by our physical ability to build fast enough. I beg to move.

6.30 pm

Lord Jenkin of Roding: My Lords, my Amendment No. 30 has been linked with the amendment moved by the noble Lord, Lord Oxburgh, and I congratulate him on erecting a fascinating superstructure of argument and anxiety on the somewhat slender foundations of his own amendment. The noble Lord has freely acknowledged to me in private that he realises that by adding “existing or future” to “consumers” he is not

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actually adding anything to the legislation at all. I moved an amendment to what became the Utilities Act 2000, so that it now states:

“In this Part—‘consumers’ includes both existing consumers and future consumers”.

Exactly the same definition is also found in Section 4AA of the Gas Act 1986. That has been the remit for Ofgem since then.

Lord Oxburgh: My Lords, I totally agree with what the noble Lord, Lord Jenkin, said, but the effect of my amendment is to change priorities. The Electricity Act and the Gas Act both have a series of primary, secondary and subsequent objectives. My amendment would change the priorities.

Lord Jenkin of Roding: My Lords, I do not want in any sense to criticise the noble Lord, Lord Oxburgh, because not only is he is extremely knowledgeable about these matters but he is pursuing an issue of transcendent importance to the future energy of this country. I just question whether, as a matter of interpretation—it will be interesting to know what advice parliamentary counsel has given to the Minister on this—the words that he is seeking to include in the Bill add anything to what is in the Utilities Act 2000. Although I will not read it all out, I have here the section of the Electricity Act amended by the 2000 Act. The definition in the clause says,

With the greatest respect to the noble Lord, I would have hoped that, given the urgency of the case that he has argued—he and I were both interviewed by the author of an article in the Times last Monday—he would have included something a little more specific.

The noble Lord’s amendment somehow infers that the priority will be raised. I am not at all clear—no doubt the Minister who has had long discussions with the noble Lord, Lord Oxburgh, on this will be able to explain—how this inference of raising the priority of the future will be achieved. I will be interested to hear the Minister's response to that.

The point is clear to me that both in another place and in Grand Committee in this House there was much concern about the way that the role and functions of Ofgem—the regulator in the energy industry—are being discharged at present in the context of the huge challenges faced by the industry, which the noble Lord, Lord Oxburgh, outlined in stark detail, and of the huge investments that are necessary to develop and secure our energy infrastructure for both existing and future consumers. One has to say that there could hardly be a more important subject for this House to debate.

Among the things discussed in the earlier proceedings were amendments to the Gas and Electricity Acts that sought to make Ofgem's remit, as the proponent said, more fit for purpose. The amendments sought to align Ofgem’s statutory role and duties more closely with the new energy policy objectives of carbon reduction and security of supply. Quite apart from the views of Ofgem on that—of which I am well aware because I discussed the matter with the noble Lord, Lord Mogg, and members of his staff at Ofgem—I am also aware that the industry has mixed views on what was proposed

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about the desirability of changing Ofgem's remit at the present time. As I understand it, the industry believes that while some such change may well be inevitable and right, it should take place only under some future legislative arrangement following wide public and political debate and consultation. The concern is that introducing amendments under this Energy Bill without that wide consultation would undermine—and I will return to this issue—the regulatory stability that is essential to support the innovation and investment needed to deliver national carbon emission and supply security goals.

I understand that there is a great deal of force in the contention that regulatory certainty is a precondition for investor confidence. Almost every clause in the Bill is designed in one way or another to facilitate and support long-term UK investment in a wide range of energy infrastructure. We should therefore be slow to do anything in this House that could impair that purpose. However, as the ongoing crisis in the financial markets has demonstrated, it is the job of government to see that the regulators are ahead of the curve, not behind it. Accordingly, the new clauses introduced by Amendments Nos. 30 and 31 standing in my name would ensure that the Government—any Government—are able to do that job properly in relation to the future regulation of the energy industry. If agreed to, the amendments would enable the Government to be more likely to ensure what they are currently unable to ensure, namely that electricity and gas regulation is carried on in a way that conforms more closely to national energy policy objectives.

At present, under the relevant gas and electricity legislation, the Government are able to issue guidance to Ofgem about the “making by” Ofgem,

That is in the 2000 Act. The idea of that is to enable Ministers to put Ofgem in a position to consider and give due weight to all the various social and environmental policies that may be relevant to the performance of its statutory functions.

I have heard Ministers, and indeed leaders in Ofgem itself, argue that the best way of ensuring that energy regulation is carried on with a view to delivering longer-term energy policy objectives is for the Government to provide more explicit guidance to Ofgem on such social and environmental issues; indeed, earlier this year, as the noble Lord, Lord Hunt of Kings Heath, will be aware, what is now the Department of Energy and Climate Change published draft guidance for public consultation that was expressly designed for that purpose. The consultation period has recently ended, and I will expect the Minister, when he replies to the debate, to tell the House when he expects to publish the responses to the consultation, and when we may expect the fruits of that exercise to be announced.

Before I turn to the substance of the new clauses in Amendments Nos. 30 and 31, I want to make it clear that I will abandon Amendment No. 32, which I do not intend to press. That provision would have empowered Ministers to give “directions” to Ofgem, in certain circumstances, on how to fulfil its functions. On reflection, it is clear that that would have a number of serious

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objections—not least because it would give Ministers altogether too much power to intervene in the day-to-day work of Ofgem, and also because it would undermine the independence of the regulator, to which we all attach great importance. Both those reasons seem to me to have a great deal of weight.

So what is left? Amendment No. 30 would require Ministers to give guidance—I emphasise that word—to Ofgem on the exercise of its regulatory functions under the relevant statutes. The key point is that the guidance is to be given with a view to ensuring that Ofgem carries out those functions in a way that is most likely to contribute to the dual objective of a system of energy supply that is both secure and sustainable—I take the words of the opening speech of the noble Lord, Lord Oxburgh, himself. Without express provision for this, there is a risk that Ofgem could lead the energy industry in a direction that is not consistent with these overriding national policy objectives.

The approach in my amendments builds on the existing legislation, which, as I have said, requires the Government to give guidance to Ofgem on social and environmental policies, but does so by spelling out a more explicit set of priorities for the guidance. If I have a criticism of the amendment of the noble Lord, Lord Oxburgh, it is that it is not specific enough. It rests entirely upon the inference that this guidance will somehow be the result of adding the words that he wants. At the same time, in my amendment, the guidance can include any general or specific proposals that the Government themselves consider relevant to the national objectives, as well as giving an indicative timetable for achieving them. All this is entirely consistent with the constitutional principle that the Government, not the regulator, should have the major role in setting the priorities and, ultimately, the decisive role in setting this country's energy policy.

The proposed new clause in Amendment No. 31 simply mirrors the parliamentary, procedural, and consultative requirements that at the moment apply to the existing guidance—but with the sensible addition that it now includes the Scottish and Welsh Ministers and the new Committee on Climate Change in the list of the statutory consultees whose views must be sought before the guidance is issued. Importantly, as in the existing legislation, if either House of Parliament resolves against the guidance, it cannot be issued.

The proposed new clause in Amendment No. 30 is the substantive one, and starts from the premise shared by just about everyone that regulatory stability is critical to long-term investor confidence. However, it aims also to take account of two other very important realities. First, the Government now have long-range energy policy objectives, including fighting climate change, that go well beyond the normal regulatory timeframe. Secondly, some mechanism is needed to ensure that energy regulation takes full and proper account of those objectives while still preserving the essential operational independence that a regulator such as Ofgem is entitled to expect. However, it does not leave these objectives to be inferred or implied, which was the burden of the speech of the noble Lord, Lord Oxburgh, but it indicates quite clearly what the objectives are that the guidance must embrace.

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Short of primary legislation, the Government have no means of delivering national energy policy objectives without Ofgem's full and continuing co-operation. These proposed new clauses aim to underpin the ability of government to secure, and indeed to rely upon, such co-operation. I emphasise that, as a matter of law, any new guidance issued under these clauses would not override the primary objectives of Ofgem, which must always remain to promote competition, encourage investment and safeguard the interests of consumers both existing and future; that has always been its primary objective and must remain so. That takes us back full circle to where my comments began.

I hope that noble Lords will feel able, on reflection, to support these proposed new clauses as being able to achieve what the noble Lord, Lord Oxburgh, has so graphically spelt out to the House that he wants to see, but to do so in a more specific and targeted manner.

6.45 pm

Baroness Carnegy of Lour: My Lords, I do not know enough about how Ofgem works to know whether my noble friend Lord Jenkin is right that what the noble Lord, Lord Oxburgh, has said is not precise enough. However, I thought that the speech of the noble Lord, Lord Oxburgh, was brilliantly illuminating, and summed up what I see on the ground as the main problem of how wind energy developments are going.

As I understood it, the noble Lord would leave Ofgem to operate as it wanted, but is attempting to alter its priorities. It would be interesting to know whether the chairman of Ofgem feels that that would be helpful. The truth is that the cart is being put before the horse all over the country; I see it across Scotland. Wind farms are being created without real reference to how what they produce will get into the grid, which is frankly terrifying. We do not even know whether the interconnector between Scotland and England will be sufficient to get energy to England should Scotland have the wit to produce more than it needs, which is what we want.

It is also interesting that Denmark has to interconnect with neighbouring countries in case there is too much still weather there. We often get big areas being still over a number of weeks, and only other forms of generation can top up when wind fails. We are talking about big wind farm developments far out at sea, but not about the interconnector there. The cart is before the horse, and we must reverse it. I hope that the Minister can tell us—and I am sure that my noble friend Lord Jenkin will be interested to hear—whether this alteration of priorities from “consumers” to “future consumers” does the trick. If it does, it is extremely subtle and simple.

The problem exists. Whether we need the more complicated, and perhaps unfortunate, vastly increased regulation of Ofgem I do not know. The problem that the noble Lord, Lord Oxburgh, outlined exists before our very eyes, and must be addressed extremely quickly.

Lord Teverson: My Lords, I found the contribution of the noble Lord, Lord Oxburgh, excellent. It is almost a textbook explanation of future challenges in this area; certainly one that I will refer to on many occasions.

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The key things are the two principles. First, Ofgem’s operation must reflect both the climate change and energy security agendas as well as its current prime tasks. That is more easily said than done, but adjustment is important. As to how that is achieved, I listened carefully to the noble Lord, Lord Jenkin, on whether this would be better done in his more explicit and detailed way. I am rather persuaded by him, although the elegance of the amendment of the noble Lord, Lord Oxburgh, is excellent. It puts the whole issue in exactly the right context, in that our decisions in this area today must last into future generations. Nowhere in energy security and climate change is this more the case.

I hope that the Minister will indicate a way to ensure that Ofgem’s responsibilities and how it operates are modified, and how that modification might be brought about without the curse of unfocused responsibilities, which can be equally difficult.

Lord Whitty: My Lords, we have today and at earlier stages of the Bill gone into the whole area of what constitutes the job of Ofgem. Distinguishing between where government policy stands and where Ofgem’s responsibilities lie is a very difficult problem. Since Ofgem was established, and reinforced by various subsequent Acts over the past eight to 10 years, its basic primary duty has not changed. Wearing my hat as chair of Consumer Focus, I cannot credibly argue that the needs of consumers should not be the primary duty, but there has to be greater subtlety and nuancing with regard to the way in which consumer needs are met within that primary duty. It needs to be made explicit that future consumers are included in that as well as current consumers. The way to protect current and future consumers and advance their interests is not necessarily solely through maximising competition in the way in which it has been defined hitherto. I say immediately that for consumers it is generally better to have more competition than less, but there is also a trade-off between competition now and competition in the future. Given the overriding importance of climate change, there will also be trade-offs between environmental objectives and social objectives, which relate to different types of consumer. I complained earlier that we had not had time to discuss fuel poverty in depth. You would expect the combination of government policy and the regulator’s responsibilities and priorities to address fuel poverty more explicitly and more clearly.

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